Assessability of a Comsuper pension paid to Netherlands resident

Is a Comsuper pension received by a resident of the Netherlands assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. A Comsuper pension received by a resident of the Netherlands is assessable under subsection 6-5(3) of the ITAA 1997.

The taxpayer is a resident of the Netherlands for tax purposes.

The taxpayer was an employee of the Australian government.

The taxpayer receives a superannuation pension from Comsuper in respect of their employment with the Australian government.

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year.

Pensions are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining liability to Australian tax on Australian sourced income received by a non-resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.

Schedule 10 to the Agreements Act contains the double tax agreement and protocol between Australia and the Netherlands (the Netherlands Agreement). Schedule 10A to the Agreements Act contains the Second Protocol to the Netherlands Agreement (the Second Protocol). The Netherlands Agreement and the Second Protocol operate to avoid the double taxation of income received by residents of Australia and the Netherlands.

Article 19(1) of the Netherlands Agreement provides that remuneration, including a pension, paid to an individual in respect of services rendered in the discharge of governmental functions to Australia or to a political sub-division of Australia or to a local authority of Australia, may be taxed in Australia.

Paragraph 23 of Taxation Ruling TR 2001/13 states that the phrase 'may be taxed' normally means the source country has a non-exclusive entitlement to tax the income. However, the country of residence of the taxpayer may also tax the income subject to the laws of that country, unless the double tax agreement explicitly prevents it.

As the taxpayer receives a pension in respect of services rendered in the discharge of governmental functions to Australia, the pension may be taxed in Australia and in the Netherlands.

Accordingly, the Comsuper pension received by the taxpayer will be assessable under subsection 6-5(3) of the ITAA 1997.

Note: Article 23(3) of the Netherlands Agreement provides that to avoid double taxation of residents of the Netherlands, the Netherlands shall allow as a deduction from the Netherlands tax so computed for such items of income, as may be taxed in both Australia and the Netherlands according to Article 19. Broadly, the amount of this deduction shall be the lesser of the Australian tax payable and the Netherlands tax payable.